Korean auto parts stocks fly high on positive industry outlook

Hyundai Motor Group logo [Courtesy of Hyundai Motor Group]

South Korean automobile components stocks are gaining ground as the outlook for demand remains positive on the projection that first-quarter global sales of Hyundai Motor Co. and Kia Corp. will outperform expectations.

According to multiple sources from the financial investment industry on Sunday, Hyundai Motor and Kia sold a combined 382,354 cars in the U.S. in the January-March period, the largest ever for the first quarter. The two automakers also accounted for 9.4 percent of the auto market in Europe last year, ascending as the fourth-largest automaker in the region.

Daol Investment & Securities Co. projected that Hyundai Motor Group’s global car sales will reach 8.12 million units this year, up 21 percent from a year ago, and up to 9.64 million units in 2025.

Shares of Hyundai Motor and Kia have soared 29.87 percent and 43.84 percent, respectively, this year.

Boosted by improved earnings of Hyundai Motor and Kia, auto component stocks are also on a rise.

Shares of Hyundai AutoEver Corp. are expected to soar the most on the back of high growth in the automotive software business and strong performance by Hyundai Motor and Kia, according to sources.

Hyundai AutoEver Corp. logo [Courtesy of Hyundai AutoEver]

“The digital transformation of the automotive industry is in its infancy and vehicle software requires a high degree of stability and security,” said Lee Jae-il, an analyst at Eugene Investment & Securities Co. “Hyundai AutoEver is our No. 1 pick among the auto parts stocks as large-scale investment is needed in the area given the high complexity depending on different car models and regions.”

Hyundai Motor Group’s sales growth in Europe may be slower this year than other regions but the rate of installing navigation systems will increase sharply, said Cho Hee-seung, an analyst at Hi Investment & Securities Co.

SL Corp., which supplies 70 percent of the light-emitting diode (LED) lamps for vehicles used by Hyundai Motor Group, is likely to benefit from the group’s increased investment in EVs.

“Most of SL’s sales come from Hyundai Motor, and the stock needs attention as all EVs use LED lamps,” said Lim Eun-young, an analyst at Samsung Securities Co.

Hyundai Mobis Co. shares, in the meantime, are also gaining attention as the company’s earnings are expected to improve from last year on cheaper shipping freight contract unit cost.

Hyundai Motor Group’s large-scale EV investment plan also lifted auto parts stocks.

Last week, the group said that it will invest 24 trillion won ($18.3 billion) by 2030 in EVs and facilities. Kia launched construction of an EV plant in Hwaseong, Gyeonggi Province, which will help increase global EV production to 3.64 million units by 2030.

HL Mando Corp. logo [Courtesy of HL Mando]

Shares of Hanon Systems Co. and HL Mando Corp., which focus on EV parts production, are also on a rise.

Hanon Systems’ first-quarter earnings are expected to edge up as local production at Hyundai Motor and Kia recovered. Reduced costs from falling raw material prices will also be reflected.

Analysts note that Hanon Systems will begin construction of its U.S. plant in the first half of this year in line with the expansion of EV plants by its major clients such as Hyundai Motor and Ford Motor Co. and that enhancing production capacity will be the key to gaining competitiveness.

HL Mando is also expected to see improved earnings this year on the back of rising orders related to EVs and autonomous driving.

“The company is projected to continue its growth in the long term with new orders for EV platforms and autonomous driving in India as well as from Ford in the U.S.,” said Jang Moon-soo, an analyst at Hyundai Motor Securities Co.

Auto parts stocks are estimated to perform better this year than last year.

According to market data tracker FnGuide, companies in the auto components sector are estimated to post a combined 1.95 trillion won in operating profit for the first quarter, up 59.9 percent from the same period a year ago. The combined net profit is also projected to increase 45.4 percent during the same period.

Hanon Systems is expected to see the largest increase in operating profit at 165 percent, followed by SL at 51 percent, and Hyundai Mobis at 45 percent.

Their stocks are also heading north led by high institutional demand.

Institutions net purchased 30.1 billion won worth of Hyundai Mobis shares this month, 20.5 billion won of SL, and 10.3 billion won of Hyundai Wia Corp.